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- BlackRock CEO Larry Fink raised the prospect of more bank “seizures and shutdowns” taking place.
- Markets remain on edge even after regulators took decisive action on Silicon Valley Bank, he said.
- Other “spectacular financial flameouts” after tightening cycles include the S&L crisis, he added.
BlackRock CEO Larry Fink sees the potential for more bank failures in the US following the collapse of Silicon Valley Bank, with the executive flagging risks that may have been created in the US financial system after decades of easy-money monetary and fiscal policies.
Fink, in his annual letter to shareholders released Wednesday, addressed last week’s seizure of SVB following its asset-liability mismatch. Separately, regulators shut down crypto-friendly Signature Bank. He said swift regulatory responses helped stave off contagion risks, but markets remain on edge.
A jump in interest rates since March 2022 spurred billions in losses in Silicon Valley Bank’s bond holdings, sparking last week’s run on deposits.
Fink said the fall of SVB recalled other periods of “spectacular financial flameouts” following prior tightening cycles. Those include the “slow-rolling” Savings and Loan Crisis in the 1980s and the early 1990s when thousands of financial institutions failed, and the 1994 bankruptcy of Orange County, California.
“We don’t know yet whether the consequences of easy money and regulatory changes will cascade throughout the U.S. regional banking sector (akin to the S&L Crisis) with more seizures and shutdowns coming,” wrote Fink, who heads the world’s largest asset manager.
Since SVB’s collapse, shares of regional banks like First Republic and PacWest have tumbled on concerns their balance sheets had similar risks.
It seems inevitable that some banks will need to pare lending to shore up their balance sheets and that stricter capital standards for banks are likely on the way, he said.
“As banks potentially become more constrained in their lending, or as their clients awaken to these asset-liability mismatches, I anticipate they will likely turn in greater numbers to the capital markets for financing,” said Fink about his longer-term view.
“And I imagine many corporate treasurers are thinking today about having their bank deposits swept nightly to reduce even overnight counterparty risk.”